The Most Impactful Financial Changes of 2023

⚡ In 2023, we saw rising interest rates, monetary policy shifts, and retirement planning changes....

🎯 Jim Zahansky, AWMA® explains how these developments had important implications for wealth management and financial planning.

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Transcript

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Welcome to You and Your Money. Empowering you to reach your goals with tips to help you Plan Well, Invest Well and Live Well. I'm Jim Zahansky, principle, managing partner and chief goal strategist at Weiss, Hale and Zahansky Strategic Wealth Advisors. Now on to today's topic. Jim, what are some of the developments that have impacted wealth management and financial planning in this year, 2023? Yeah, I mean, one of the noticeable shifts and we were just talking about it has been the rising interest rates. You know, higher rates this year have given opportunities for managing short term holdings, you know, mostly cash holdings, giving individuals a chance to earn higher interest rates on cash reserves. So, you know, all the way from some savings accounts to certificates of deposit to U.S. treasuries to to money market funds have all paid, you know, significantly higher than they have in the past. I mean, we've had CD rates above 5%. That's one of the positive effects of rising interest rates. The other is that when you have a rise in inflation, you know, those of you on social Security that are listening, you've seen noticeably larger Social Security increases in 2022 and in 2023 than you have in the past. These are aimed at offsetting some of the increased cost of living that we're just talking about. You know, particularly for those listeners that are retirees and depending on that Social Security benefit, uh, you know, and so that's one of the positive impacts of interest rates. And although they're they're likely to come down in 2024, um, that sort of impact it has on increased benefits and short term cash savings has really been a boon to some who are saving in the banks and increase in using their Social Security benefits to offset rising costs. Interesting stuff. How have monetary policy shifts affected investment portfolios? This is I mean, as I said earlier in our investment committee, you know, it's interesting. I mean, the Fed has been saying and using, I think, a much more data driven approach to increasing interest rates, particularly in 2023. In 2022, they knew they just had to keep increasing in 2023. Um, you know, it's been more of a of a of a data driven scenario where they're looking, you know, is the interest rate are is inflation coming down. And if it is, you know, do we need to keep raising it such a such a high rate and they obviously lowered the pace and the rate of increases in 2023. So that was um, I think for us an interest to give us an interesting opportunity set when we looked across the markets, right? I mean we were able to use cash instruments, treasuries that were stable and paying at higher rates and we were able to mix those, you know, with value type stocks that are paying higher, higher interest and and dividends than they had in the past. And growth stocks in 2023, particularly in the tech sector, really start to take off. So all of these combined allowed for, you know, fairly significant portfolio performance this year from our investment committee as we watched monetary policy interest rates and inflation start to move. Jim, let's talk about the Secure Act 2.0, which introduced retirement planning changes. Elaborate on that, please. Yeah, this was some big legislation that, uh, came through, you know, late last year, uh, through through Congress. And it really, uh, it brought some significant changes that will go into place over the next few years. But for 2023, um, you know, it meant things like the introduction of student loan payment matching contributions from employers, um, and also raised the required minimum distribution age to 73. And if you're born after the year of 1960 at rates start to age 75, so have an increasing required minimum distribution age. Um you know which has been been ongoing. Um, so meaning if you have an IRA, you don't have to take a required minimum distribution now to age 73, and if you're born after 1960 at age 75. So it's really benefiting. Um, this act really benefited those planning for retirement and managing, uh, tax deferred funds overall. The human aspect of financial decisions crucial. How has psychology influenced financial planning this year? I think it influences it every year. Um, you know, uh, you know, our job as financial advisors and our team and our, our advisory team, which, you know, consists of, of certified financial planners and those who have experience in financial planning, um, are part of our job is to manage psychology of clients because what happens is, you know, many clients and investors tend to react favorably when markets are up and want to jump in to buying at that point. And what that's okay. Uh, however, it's much better to buy when markets are lower. And so, you know, we sort of, um, we take, we take the idea of looking at long term risk adjusted returns in our investment committee. We look at five and seven year returns and we try to manage psychology, um, through the ups and downs of markets because you can't control the ups and downs. You can only understand when they may or may not be coming and how to navigate them. And we take that very seriously. Um, and we try to align it to our client's goals and their values because each person is different, each client has a different investment strategy that aligns to their own goals and values. And, and so, um, I, I guess to get back to your question on psychology, it's just sort of taking the clients goals and values and trying to help them manage through and the ups and downs of the market so that we can help them achieve their goals. And, and that's really what personalized advice is all about and what we really strive to provide to our clients. That's a great point. Understanding the psychological aspects that drive financial decisions has become increasingly important. Recognizing clients goals, values and concerns allows us to offer more personalized advice. So Jim, can you elaborate more on the emphasis on client values and the goals at Weiss, Hale and Sandusky? Yeah, I mean, so, um, you know, the clients basically think about their needs, their preferences, their values. I mean, that really is the heart of, of, uh, of financial planning and it deeply resonates with our approach here. I mean, we really try to truly understand our client's perspective. So, uh, I'll give you an exact example. I mean, we, we, we pride ourselves on delivering what we call a plan. Well, invest well, live well process. And I'd say what makes that sort of unique is we really don't enact an investment strategy, the invest well phase until we do the plan well phase. So do you have a significant financial plan and what does that mean? It means what are your goals? When are you trying to achieve them? Do we have an income plan for retirement? You know, when you retire, how are you getting income? How is that managing, Uh, things like inflation? How is it managing through the ups and downs of the market? That's what the financial plan is. And so if you're working with an advisor, ask them for retirement income plan. If that's a goal of yours. If you're looking to buy a house for in the next few years and you're trying to save for that, be sure your investment strategy manages that time horizon. And so that's specifically how we connect the end with the vest. Well, phase two, the plan well phase and each of our clients has a different connection for both. What they're trying to achieve. That's their goals and how we invest the money. That's the investable phase of what we do. So hopefully that helps helps you answer that question about our emphasis on clients values and goals. I realize people are a little bit more concerned about trimming trees and buying gifts for the next couple of weeks or so, but do you find people at the end of the year or correspondingly at the beginning of the new Year, thinking about maybe a financial plan? And that would include not just new investments, but maybe also reallocating some of the current investments in the portfolio? Yeah, I mean, great question. Clearly, you you at this point in time, I mean, to your point, most people are focusing on the holidays and spending time with family, but it is a good time to think about things like tax loss harvesting in your portfolio. You know, have you have a and this is something we do for our clients. Have you done the right portfolio management? You know, do you need to rebalance your portfolio based on your risk profile? These are all questions to ask yourself. Now, of course, after the first year you lose that tax loss, halving harvesting opportunity for the tax year. But if you don't get to it, you know, in November or December, certainly something you should, you know, consider for next year. So I think you're right on when that people want and should want to evaluate their their overall financial plan inclusive of these sorts of tax efficiencies, inclusive of these sorts of is it is your portfolio invested. Right. And then thirdly, just ensuring that you are on track against your goals. I mean, if you're retired and you have a fixed income, you know, is that is the portfolio producing the income you need and how will it look in the future is the heart of financial planning and specifically retirement income planning? Jim, you and I have done these shows for the best part of 20 years now. You and Your Money and you just dropped a phrase on me I've never heard you use before and I don't quite know what it means. And maybe you can clarify what tax loss harvesting is. It's basically, you know, during the end of the corn season, we go out in the fields and cut them down. And then you shuck ‘em and eat ’em. No, Uh, yeah, yeah. So, I mean, it's similar. It's a similar it's a concept similar time of year, however, right? I mean, you're basically looking at the portfolio and trying to understand is do you have specific holdings that that, you know, may not be necessary in the portfolio, that you could have a loss? You know, they've lost money since you've owned it. And if you take that loss during the tax year, you realize it is what we call that's the language. We realize the loss in the portfolio by selling it. Um, you, you in fact could have a positive tax benefit. So say for example, you sold a, you know, a home this year where you had a capital gain on it. And so you're trying to offset some of those capital gains with some losses. And that is something we try to do for our clients if if in fact that's the situation there in. And that gets directly back to the question you asked me about, how do we manage goals? You know, and this is one way if you you know, if you specifically had a had a goal of reducing taxes, we would look at your portfolio, see if we can't realize some of the losses so that you can offset some of the gains you might have had. So that's what tax loss harvesting is. When I remember back in the day they would talk about diversifying portfolios and I would include some internal national stocks or we as big on international now as we were ten, 20 years or so ago. Is it still a good idea to buy International? I am. I mean, it's always good to have a diversified portfolio and we certainly own international we're mostly focused on developed nations. So we're really not in in a non developed nations internationally. But I would tell you this, we've certainly trimmed the holdings in international largely because over the past ten years and I was saying to you, we focus on the long term risk adjusted returns. So we're looking at five, seven and ten year performance. When you look at the last ten years, it's hard to believe, um, that international has outperformed the U.S. It hasn't wildly underperformed the U.S. stock market. So when you look at the indices, so it's certainly something to hold. And I'm not saying there aren't good opportunities there. There are, However, they're just not have it have not performed the way the U.S. markets have performed over the last ten years. Jim, good stuff. Thanks for joining us today and sharing the insights of what's going on in 2023 as it wraps up. Yeah, thanks for, thanks for having me. Of course, it's been an interesting year in a lot of ways. It really tested the psychology of investors this year and the ups and downs of monetary policy, but it certainly has been notable year in many ways, both from a policy and financial planning. And, you know, I think from our team's perspective, we're really happy with where our clients have ended up for the year and that we've been able to deliver a personalized financial planning and investment strategy for them. And I wish you and all your loved ones an amazing holiday season and I can't wait to pick these up again into 2024. Jim Zahansky talking about the most impactful financial changes of 2023. That brings us to the end of this episode. Thanks for listening to you and your money. Find even more episodes, videos and other resources at our website whzwealth.com. Be sure to come back next week for more tips to help you live fearlessy and pursue your financial and life goals. Until then, live well. Weiss, Hale and Zahansky Strategic Wealth Advisors offer securities and advisory services through Commonwealth Financial Network member FINRA/SIPC, a registered investment advisor, fixed insurance products and services offered through CES Insurance Agency. They practice at 697 Pomfret Street, Pomfret Center, Connecticut, 06259 and can be reached at 860-928-2341. Weiss, Hale and Zahansky Strategic Wealth advisors do not provide legal or tax advice. The tenured financial services team strive to support clients in achieving their financial life goals. For more information regarding wealth management and customize financial planning with Weiss, Hale and Zahansky Strategic Wealth Advisors, please visit www.whzwealth.com.